A leading supplier of high performance network infrastructure
solutions,
QLogic Corporation (
QLGC
)
reported first quarter 2013 earnings of 19 cents, which missed the
Zacks Consensus Estimate by a penny. Reported earnings include
stock-based compensation expense ($9.3 million) but exclude
amortization related expense ($0.2 million).
However, earnings plunged 42.0% year over year, primarily due to
weak revenue growth and operating margin contraction in the
reported quarter.
Quarter Details
Total revenue decreased 9.8% year over year to $130.4 million
and lagged the Zacks Consensus Estimate of $132.0 million. However,
total revenue inched past the lower end of management's guided
range of $130.4 million to $135.0 million. The year-over-year
decline was on the back of weak growth across most of its segments
during the quarter.
Host Products and Silicon products decreased 7.2% and 41.8% year
over year to $101.0 million and $9.8 million, respectively, in the
reported quarter. This steep decline fully offset a 4.3% growth in
the Network products revenue to $19.5 million in the quarter.
Total operating expense increased 5.1% year over year to $67.0
million, primarily due to higher engineering and development cost
(up 13.2%), partially offset by lower sales & marketing expense
(down 4.2%) and general & administrative expense (down 5.3%).
Operating expense exceeded management's expectation of $59.0
million, which hurt the company's operating profit during the
quarter.
Operating profit in the first quarter declined 44.1% year over
year to $20.0 million. Operating margin decreased from 24.8% a year
ago to 15.4% in the reported quarter. Non-GAAP net income was $18.6
million compared with $34.3 million in the year-ago quarter.
As of July 1, 2012, QLogic had cash and short-term investments
of $496.3 million versus $538.0 million in the previous quarter. At
the end of the quarter, the company had no debt on its balance
sheet.
Guidance
QLogic expects second quarter 2013 revenue in the range of
$115.0 million to $120.0 million. Gross margin is expected to be
approximately 67.0% to 68.0%, while QLogic expects to incur
operating expenses of $60.0 million. Non-GAAP earnings are expected
in the range of 16 cents to 20 cents for the second quarter.
Recommendation
We believe that QLogic will benefit from major OEM customer wins
and increased focus on its key strategic initiatives over the long
term. However, we believe that a sluggish IT spending environment
and increasing competition from peers such as
Mellanox Technologies (
MLNX
)
will hurt profitability going forward.
We continue to maintain a Neutral recommendation on a long-term
basis (6-12 months). Currently, QLogic has a Zacks #4 Rank, which
implies a Sell rating on a short-term basis.
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